Facts

Defendants, owners of petroleum and other products pipelines, formerly held 1,850 miles of petroleum pipeline easements on Union Pacific's railroad corridor property in six western states, for which Defendants pay annual rent. The parties' easement agreement requires annual rent to be re-determined in accordance with the fair market value of the easement every 10 years (with annual CPI adjustments thereafter). The renewal period began in 2004. In 2003, rent was less than $7 million per year.

The Court determined that the annual rent due for 2004 was $14,080,087. Defendants had been paying rent based on 2003 figure plus annual CPI increases, less certain self-determined deductions. The judgment represents back due rent, the difference between rent now due and what had already been paid for 2004-2012, or $81,589,584, plus more than $19 million in prejudgment interest. In addition, Defendants are required to pay CPI-adjusted rent in succeeding years of about $16 million, pending redetermination, after certain deductions for abandoned easements.

The parties disagreed over appropriate valuation methodology for corridor easements. Union Pacific advocated use of the Across the Fence ("ATF") methodology. Defendants advocated use of a combination of ATF and comparable lease analysis. The trial court admitted testimony as to both approaches and ultimately found that the ATF method was reliable and is the industry standard methodology for valuing corridor property. Judge Chernow placed no weight on Defendants' multiple regression methodology, finding that the data used was not sufficiently comparable to the subject property and the regression methodology used by Defendants' experts was flawed.

PLAINTIFF'S CONTENTIONS:
Plaintiff claimed that the annual fair market rent was approximately $19 million as of 2004, based on ATF Methodology.

DEFENDANT'S CONTENTIONS:
Defendants claimed that the annual fair market rent was approximately $7 million as of 2004 based on multiple regression analysis of prices paid for other easements.

Result

Judgment for $100,961,780 ($81,589,584 in back due rent plus $19,372,196 in prejudgment interest).

Other Information

The trial took place before a temporary judge, appointed by stipulation, on 260 days spread out over more than four years, ending in May 2011. The Statement of Decision was issued in September 2011. Action was filed to determine annual rent due for 1850 miles of pipeline easements on railroad right of way property, beginning in 2004. Union Pacific filed a motion for prejudgment interest and a motion for attorney's fees recoverable on two cross-complaints. The motion for prejudgment interest was granted under Civil Code section 3287(b). Defendants filed a demand for arbitration of the interest issue after motion was filed and briefed. After the motion was granted, Defendants filed Petition to Compel Arbitration of interest issue in a separate action, which was denied by Judge James R. Dunn in Dept. 26 (BS 136153). Defendants also filed a motion to vacate judgment and motion for new trial. Judge Eli Chernow denied both motions.

Deliberation

four months

Length

4.3 years